Lifting Up the Very Bottom: Economic Growth or Redistribution?

It is sometimes said that “a rising tide lifts all boats,” meaning that the benefits of a rising economy are ultimately enjoyed by everyone in society. But when is the lift greatest for those at the bottom of the income distribution? Lane Kenworthy has a nice blog post considering this question. Below is a figure from his post showing the income of the 10th percentile of income earners in Sweden and the United states from 1970 to 2000, a period of robust growth in both countries. The message is clear: low income earners enjoyed much greater gains in Swedish society than in the United States.

Lane speculates a bit about possible mechanisms, and suggests that probably most of the growth in income came from government redistribution in the form of transfers, and not through wages.

Just in passing I want to mention that the 1990s in the United States are a bit of a chestnut that Lane doesn’t fully crack — during that time income grew for the bottom the fastest even as government generosity in cash assistance fell. There was a booming economy that helped those able to work and there were countervailing changes in government transfers, such as an increase in the minimum wage and the EITC, but one would speculate that these mainly benefited workers (people in deciles 20-50). This also opens up a question that Lane mentions in his blog — the policies that benefit those at the very bottom need not be those that benefit the working poor. Government redistribution is a blunt instrument, so it’s often difficult to enact a set of policies that help both the very worst off and the near-poor.

About Brendan Saloner

I am a postdoctoral fellow at the University of Pennsylvania in the Robert Wood Johnson Health and Society Scholars Program. I completed a PhD in health policy at Harvard in 2012. My current research focuses on children's health, public programs, racial/ethnic disparities, and mental health. I am also interested in justice and health care.
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3 Responses to Lifting Up the Very Bottom: Economic Growth or Redistribution?

  1. Paul Kelleher says:

    I won’t attempt to analyze it deeply, but the following nugget has always stayed with me:

    Each one percent expansion in the economy over the 1960s was associated with a $2.18 increase in weekly wages after inflation for workers in low-income families…Over the expansion of the 1980s, a one percent expansion in the aggregate economy was correlated with a $.32 decline in weekly wages for the poorest 10 percent. (pp. 55-6)” (Rebecca Blank, It Takes a Nation, pp. 55-56)

    This of course bears on the issue of a rising tide lifting all boats. But one thing that always frustrated me about this quotation is that it compared wages of “low-income families” with the wages of “the poorest 10 percent.” I’m no social scientist, but it seems to me that stats like these should wear their apples-to-apples bone fides on their sleeve.

  2. Thanks so much for the comment. That’s a good spot, and probably not merely terminological — one point I want to hammer on is that there are many low-income people that benefit from market-oriented policies, but others for whom income can only increase through welfare payments, it’s sometimes difficult to help one group without hurting the other (although that point can also be overstated).

  3. Paul Kelleher says:

    I’m really glad that you are intent on so hammering. I personally dislike my default tendency to think there are or must be easy solutions, or ones that have only negligible costs for constituencies I’m concerned about. It always helps to have the real complexity of the landscape painted in ways that open eyes that would have otherwise been shut. (OK, enough with the metaphors!)

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